~ Perspective from Vancouver

China’s Banks Cooling Vancouver Housing Investment?

There are some interesting changes occurring in China which may impact the Vancouver housing market. As reported in Business in Vancouver “the People’s Bank of China and the State Administration of Foreign Exchange (SAFE) began an aggressive intervention in the market to curb capital outflows. In January it was ruled that all buyers of foreign exchange must sign a pledge that they won’t use their $50,000 quotas for offshore property investment.”

Citizens of China may take $50,000 a year out of the country, but enforcing the regulation that the monies will not be use for foreign property investment has never been routinely enforced. Stricter penalties mean that people who do may be denied foreign currency access and be part of investigations for money laundering.

It is estimated that 35 billion dollars a year is spent on commercial property investment not including the purchase of overseas homes. Last August the B.C. government brought in a foreign buyer’s tax of 15 per cent.

The market has responded to these factors with house prices down 4 per cent and housing sales decreasing by 47 per cent. “Joe Zhou, of Jones Lang LaSalle property management head of research in China, has predicted a “big drop” in overseas purchases this year amid concerns over stricter and longer review procedures by the authorities as part of efforts to ease pressure on a depreciating yuan.”

Will this cool off individual investors buying single family homes for investment in Metro Vancouver?

Post navigation

7 thoughts on “China’s Banks Cooling Vancouver Housing Investment?”

A lot of hyperventilation over the evils of foreign real estate investment has occurred over the last couple of years, most of it by well-known pundits. But so far the evidence does not back up their central conjecture that foreign money was the only cause of the affordability crisis. Today the foreign buyer’s tax is said to have resulted in nearly a 50% drop in sales, but prices dropped by only 4% so far? C’mon. That’s not evidence.

In the last decade we have seen the second deepest financial crisis in a century and a real estate tax targeting wealthy foreign buyers, and neither has resulted in anything but minor dips in land (housing) prices. Isn’t it obvious by now that other forces have been at play all along, and that land value accompanied by record cheap credit in a place where there is very little undeveloped land left will not go down so easily?

During this overly heated narrative not a lot of rational consideration was given by the media to the simple geometry of land use / zoning and its relationship to supply. The fact remains that ~30% of housing occupies ~80% of residential land in this town, and I’d guess the Metro is similar. In its place we received cavalier dismissals of topics with such boring headlines and low value click bait while inflammatory commentary filled the media (both mainstream and social) about foreign invasions of money, Lambos, unemployed billionaire child homeowners, and the supposed by-product of all this: Empty homes.

When you look at the map linked below it’s obvious there are empty homes in every neighbourhood, some of course more than others. But “empty homes” is a misnomer on its own, as the authors also throw in “underutilized” as a caveat and admit that census tracking isn’t perfect. Being away on a long vacation or dealing with the legal distribution of an inheritance through an estate account (often taking 12-18 months or longer) at the time of the census could count you on this list. The relationship of empty homes to foreign wealth is not well defined, but the assumption is that it tracks areas with higher value real estate, which are in turn attractive to wealthy foreign investors. It does track more closely with areas where speculation is higher, such as where hot condo sales occur, like Metrotown and Marine Gateway, which are priced lower but have a similar rating as Coal Harbour with much higher values.

When we look a bit closer, Bowen Island (22% vacant – not a big surprise), the Seymour watershed (20%), and the flats around Colony farm (100% — puzzling, but it’s there) have the highest vacancy rates. The empty home ratios of Whalley, Burnaby Flats farmland, parts of North Delta, Surrey Centre, Gilford, South Surrey and Whiterock are in the same 10%-15% rate as the top dozen neighbourhoods in Point Grey, West Kits, Dunbar, South Vancouver and Shaughnessy, yet the latter get all the press only because they are pricier. Moreover, couching that 10% of a Point Grey neighbourhood is vacant by a best-guest definition isn’t fair to 90% of people who live there all the time. That’s 90% participation in the local economy – why isn’t that used for comparison? By extension, they would probably find even higher empty rates in Calgary due to the downturn of their one horse economy.

This exercise only proves that the number of so-called empty homes is not the only (or even a true) measure of the overall health of a community.

There is also the simple geometry of increasing the supply of housing by subdividing expensive residential parcels of land into more affordable (and less wasteful) smaller pieces. One $4 million Point Grey corner lot a half-block from the transit and commercial amenities of 10th Ave could become eight rowhouses with suites, thus lowering the per home price tag while also increasing income. Or 20 apartments in a low-rise building of varying sizes for various incomes.

I’m sorry Alex, but No. The fact that sales skidded to a halt fastest and hardest in Richmond where Mainland Chinese money was most active proves how much foreign money was influencing price. Sure, it was not the only factor but foreign money, and the speculation brought on by it, was the biggest. Prices haven’t fallen because there are a lot of greedy local owners who haven’t accepted the new reality and spec builders who are hoping to ride it out. It would be great if interest rates rose to force their hand.

If you need further proof you can find it in the fact that despite low unemployment incomes haven’t really climbed. Most local buyers cannot afford those prices on Vancouver wages. It really is that simple.

Given real facts and data one can surmise that DETACHED homes are unaffordable on average incomes in most, but certainly not all, of greater Vancouver. Apartments and a good portion of townhouses are another story, even on the west side.

Again, DETACHED homes are down, but not by a huge amount as the result of the tax. Meanwhile, townhouses and especially apartments went UP.

I suggest this data proves that there is so much hot air and rhetoric out there – and here – from people who imply there is no difference between a detached house and a condo, that a tax on foreign investment ion the local real estate market will magically bring prices down to where they were years ago (it won’t, and it was only a political move) and that west side luxury prices can be applied everywhere to make a point about lack of affordability.

And those market figures bear out my position. In the price points at which local wage earners are still able to compete, condos and to a degree townhouses, there are still healthy sales.

For whatever reason SFH home prices haven’t budged as much as their precipitous decline in sales would warrant. Again, I put that down to sellers refusing to face the new reality. Unless you’ve been transferred or are moving up, there’s often no hurry to sell, and anyway most people are now blocked from move-up because of the insane prices for a house in Vancouver.

I would say the lack of sales depends as much on personal circumstances and the quality of the neighbourhood than anything else. Lots of people in the suburbs plan to cash in and move elsewhere (Okanagan, the Island), but on the other hand lots of people in the inner city find the value of their walkable neighbourhood better than a number on an assessment notice. Maintaining large lots is onerous for most seniors who eventually seriously consider multi-family housing or assisted living in their neighbourhood.

Not one person I know cares about the foreign buyers tax, renter or owner, young or old.